ESR Readies for $320M Korean REIT IPO in December

After achieving Hong Kong’s third-largest IPO of 2019, logistics giant ESR this month announced plans to raise fresh capital through an initial public offering of a Korean real estate investment trust in December.

The new REIT is being sponsored by the Warburg Pincus-backed developer and fund manager’s Korean division, ESR Kendall Square, and expects to raise KRW 357.3 billion ($320 million) from the sale of equity based on a portfolio composed of logistics properties in the Greater Seoul and Greater Busan areas.

The REIT IPO plan, which Mingtiandi had first reported in December of last year, comes as trades of industrial properties across Asia Pacific, primarily logistics assets, rose 22 percent during the third quarter compared to the same period a year earlier. With the COVID-19 pandemic hitting confidence and hindering inspections, trades of office properties had fallen by 37 percent over that same interval, according to JLL.

ESR will kick off its investor roadshow for the REIT on 23 November, with institutional book-building set to start just two days later, according to an announcement to the HKEX. Pricing of units in the REIT is expected to happen on 3 December, with shares expected to begin trading by the end of next month.

11 Properties in the Portfolio

The REIT is expected to have a market capitalisation of KRW 716 billion, with the proceeds going towards the purchase of 10 properties in the Seoul and Busan portfolio. The listed trust also intends to use its newly raised cash to acquire the Anseong Logistics Park in Gyeonggi province south of the capital, according to the stock market announcement.

After the IPO, ESR, through its Korean subsidiaries, expects to hold a 9.9 percent stake in the listed trust, with its Kendall Square REIT Holdings affiliate set to manage the REIT.

ESR has been active in South Korea since 2015, and the country now accounts for over a quarter of its projects. The developer and fund manager has set up local development joint ventures with the Canada Pension Plan Investment Board (CPPIB) and Dutch pension manager APG, among other investors.

In June of this year, ESR closed on a fresh $1.1 billion joint venture with CPPIB and APG to develop new projects around Seoul and Busan. That new investment came after the two fund managers had set up a $500 million JV with ESR predecessor E-Shang in 2015, which was later upsized to $1.15 billion.

ESR has attributed its Korean expansion in part to the growth of online shopping in the country. The Korean online retail market, which relies on modern logistics facilities to speed deliveries, is ranked sixth in the world, with a value of roughly $60 billion in 2019, according to ecommerceDB.

ESR had some 3.3 million square metres (35.5 million square feet) of logistics projects in South Korea as of 30 June of this year, with its assets under management in the country reaching $7.2 billion. Those figures represent 18 percent of the company’s total projects by area and 27 percent of its assets, according to ESR’s interim report.

ESR Joins MSCI Hong Kong Index

Within a week of announcing its plans for a listing on South Korea’s KRX exchange, ESR was also unveiling a new milestone on the Hong Kong bourse.

On 11 November the company announced it would be joining the capitalisation-weighted MSCI Hong Kong Index as a constituent, effective after market closure on 30 November.

The index includes some of Hong Kong’s biggest developers, among them Sun Hung Kai Properties, CK Asset Holdings and Link REIT. When listed, ESR will be the index’s only pure-play warehouse developer.

“The inclusion is … a testament to ESR’s consistent engagement with a wide base of international investors and recognition of our robust underlying business fundamentals with an asset-light approach,” ESR co-founders and co-CEOs Jeffrey Shen and Stuart Gibson said in a release.

The MSCI listing comes just a year after ESR raised $1.6 billion from its Hong Kong IPO, ranking it behind only Alibaba’s Hong Kong debut and the listing of Budweiser’s APAC operation on the HKEX.

As of 30 June, ESR counted $26.5 billion in assets under management, a 31 percent increase year-on-year, stemming from strong fundraising in its Australian, Chinese and Korean platforms, the company said in its MSCI statement.